FirstGroup (FGP) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition enables entry into the London bus market at scale, diversifies the portfolio, and supports medium-term earnings growth.

• RATP London operates 1,000 buses, holds a 12% market share, and manages 90 TfL route contracts, with one-third of its fleet electric.

• The deal leverages RATP London's turnaround plan, electrification progress, and strong management team.

• London market offers resilience, positive growth outlook, and is underpinned by strong funding from Transport for London.

• Experience gained will bolster credentials for future UK franchising opportunities and potential international expansion.

Financial terms and conditions

• Enterprise value of £90m, funded by £45m in cash and £45m in asset-backed vehicle finance leases.

• Physical assets of about £100m, including £50m in freehold property, underpin the deal value.

• Onerous contract provisions of £40–50m to unwind over contract terms, limiting P&L impact in FY2025–2026.

• Expected operating cash outflow of £30m in first two years, turning positive from FY2027.

• SPA includes customary warranties, indemnities, and a parent company guarantee; seller retains responsibility for all debt except hire purchase and lease finance obligations (~£45m) at completion.

Synergies and expected cost savings

• Synergies anticipated from procurement, advertising, energy, bus recycling, insurance, materials contracts, fleet purchasing, and back-office functions.

• Synergies expected to be additive to 6%-7% margin targets and enhance profitability.

• Tax losses provide a shield against cash tax payments for several years.

• Turnaround plan underway, focusing on enhanced bid discipline and improved cost performance.

• Potential to leverage Ensignbus for vehicle sales and consider joint ventures for electric bus batteries.